The Fosun Group is leading the way for Chinese investments in private equity.
by Faye Zou, MBA ’15
China is currently number 2 in the world in terms of GDP. In the year of 2013, 93 Chinese companies are listed in the Fortune 500 list. According to China’s Ministry of Commerce, Chinese overseas investment totaled $61.6 billion by the end of September 2013 – a 17.4% year-on-year increase. Chinese overseas investment is set to continue to grow at double-digit rates in 2014. 14 Chinese companies in various industries are listed as the largest globalized companies in the world by Forbes. Many familiar names have made the list such as Lenovo (Consumer Electronics), Dalian Wanda (Entertainment and Commercial Real Estate), Huawei (Telecommunications), CNNOC (Oil and Gas), Fosun Group (Conglomerate), Alibaba (Internet), Tencent (Internet) and Baidu (Internet).
The Fosun Group
Fosun Group was founded in 1992 in Shanghai. Its parent company Fosun International (00656.HK) was listed on the Main Board of the Hong Kong Stock Exchange on 16 July 2007. With a series of acquisition in recent years, the group has demonstrated outstanding investment strategies in diversified industries, leading to 93.37% 1-year return according to Bloomberg Business. Most recently, Canadian circus firm Cirque du Soleil announced that it has sold a majority stake in itself to a consortium led by private equity firm TPG which included Fosun. Cirque du Soleil President Daniel Lamarre commented, “Fosun’s expertise in China and the Caisse’s homegrown financial strength are a powerful combination that will fuel new growth in our business”.
Today, Fosun has established four business engines comprising “insurance, industrial operations, investment and asset management”. It is dedicated to becoming a world-class investment group underpinned by the twin drivers of “insurance-oriented comprehensive financial capability” and “industrial-rooted global investment capability”. The company’s series of investment actions are analyzed in this article for analysis of its investment strategy, along with the macro-economic condition of the Chinese market.
With regards to its investment philosophy, Fosun has been persistently taking roots in China and investing in China’s growth fundamentals, while grasping investment opportunities evolved from the changing lifestyles of the middle class in China and global economic transformation. It is dedicated to applying the value investing principle to its investment model of “Combining China’s Growth Momentum with Global Resources”, striving to become a China expert with global capacity, with a view to creating value for society and its shareholders.
In practice, Fosun unremittingly builds up its capabilities in identifying and capturing investment opportunities in China, improving the management and enhancing value of the investees, and establishing a multi-channel financing system to access quality capital. With a value chain based on these three core competencies and a group of entrepreneurs endorsing Fosun’s corporate culture, a solid foundation has been laid for the continuous rapid growth of the Group.
While pursuing economic development, Fosun also shares the fruits of its business success with its staff, partners and the community, taking the initiative to contribute to society in return. Meanwhile, Fosun also actively contributes its efforts to improve the business and natural environments of China so as to support the rejuvenation of the Chinese economy and culture.
The strategy of Fosun is “To become a world-class investment group underpinned by the twin drivers of insurance-oriented comprehensive financial capability and industrial-rooted global investment capability,” according to Mr. PAN Song, Managing Director of the PE arm from Fosun Group on October 3rd, 2014 at Cornell University.
“Fosun is on a speedway, with its dual engine on insurance and investment. There are more opportunities for insurance company acquisitions in the next two years,” stated Mr. Guangchang Guo, Chairman of the Fosun Group. “In the future, Fosun is targeting health, happiness, fashion and product as its core business, with the foundation of insurance and real estate, realizing parallel business development in these two areas,” said Mr. Xinjun Liang, CEO of Fosun Group.
In 2014, Fosun invested 15 projects overseas, with a combined investment of $53 billion. Mr. Guo emphasized, “as a professional investment group, we are constantly thinking about three questions: how to continue to innovate at the funding level to source stable, long-term and low cost sources; how to strengthen our investment portfolio, seeking opportunities in varies industries in the global market, improving return on investment; how to balance risk and growth, with the only goal of long-term sustainable growth.
Fosun is perhaps the most openly ambitious among Chinese companies that are looking abroad for investment opportunities. From the $765 million Club Med deal to the $725 One Chase Manhattan Plaza in New York acquisition, Fosun focused on its strategy with a growing footprint in the insurance business. (Exhibit 1)
Its current portfolio can be viewed in four categories:
- Insurance (RMB 523.6 Million in profit, 2013): Young’an P&C Insurance, Peak Re , Pramerica-Fosun Life Insurance, Fosun International Portugal (Portugal, 1 billion Euro)
- Industrial Investment: Fosun Pharma, Forte, Nanjing Nangang, Hainan Mining
- Strategic Investment: Club Med (France, 1.4 billion Euro), Focus Media, Yuyuan, Minsheng Bank
- Asset Management: Fosun Capital, Prudential-Fosun Fund, Fosun Wealth Fund, Star Capital Fund, Fosun Grand Fund
The competitive advantages of Fosun are its knowledge of its local market. With acquisition of valuable brands, Fosun can leverage the mature operation and brand management of the acquisition and grow its market in China. The lack of reputable brands in China, especially in the entertainment and fashion industries due to the short history of open business activities, introduced significant opportunities for synergies with global acquisitions.
As one of the first companies to invest in the global market, risk management and development of operational expertise are the most challenging factors when developing investment strategies. In addition, volatility of China’s economic environment has also directly impacted companies’ core businesses in the country. Actively managing such risks and acquiring talent continue to be the main tasks of globalizing Chinese companies.
Exhibit 1 – Annual Revenue and Profit Attribution
Source: Sina Finance, 3/27/2015 http://finance.sina.com.cn/stock/hkstock/ggscyd/20150327/025921821362.shtml 14 Chinese companies going global in 2014 http://www.forbes.com/sites/joelbackaler/2014/01/10/ranking-14-chinese-companies-going-global-in-2014/ Interim report 2014, Fosun International